Exact meaning of Free Bake
It basically means your bake has been cleared, but will remain visible until you change a parameter of the simulation and then change the frame and it will clear away the cached bake data.

For example, if you have baked a cloth simulation, and you free the bake, you've set it up to be cleared.  Once you change a parameter like the cloth stiffness, and then change the frame, all the baked data is then cleared from the cache.  However, if you've chosen to bake to disk, the bake information is still stored on the hard drive and can be relinked.